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Overview

Lesotho is a small, mountainous, and land-locked country, surrounded by its much larger neighbor, South Africa. It has a population of about two million, and a per capita gross domestic product (GDP) of $1,160. Lesotho is classified as a lower-middle-income country. It is mostly highlands, with its lowest point 1,400m above sea level. Previously a British protectorate, the nation gained its independence in October 1966. Lesotho is a constitutional monarchy, ruled by a King as head of state, and governed by a 33-member Senate and a 120-member National Assembly. Lesotho held elections in June 2017 for the third time in five years. This led to the formation of a four-party, coalition government, led by Prime Minister Thomas Thabane. In keeping with recommendations for key governance and security reforms, made both by the Commonwealth and the Southern African Development Community (SADC), Lesotho’s leadership has committed itself to engaging in multi-stakeholder consultations to inform the reforms.

Economic growth

Economic growth in Lesotho for the last three years averaged approximately 3%, driven primarily by textile manufacturing and agriculture. The performance of textile manufacturing was underpinned by the Rand/dollar depreciation, while agriculture experienced a strong recovery following the severe droughts of 2015 and 2016. Domestic growth is, however, expected to pick up in the next three years boosted by an increase in construction associated with the second phase of the Lesotho Highland Water Project and diamond mining. Unemployment remains high at 24 to 28%, coupled with high inequality and poverty. Lesotho made progress in poverty reduction in the 2000s by lowering its headcount poverty rate ($1.9/day PPP) from 61.3% in CY02 to 59.7% in CY11. Estimates for 2016 suggest that 57.8% of the population is still trapped under extreme poverty.

Development Challenges

The country finds itself at a crossroads needing new engines for growth, a more streamlined role for the state, and a dynamic private sector to help it seize opportunities in regional and global markets. Lesotho has made important progress in improving its Doing Business indicators, especially in terms of streamlining business and property registration processes that hinder the growth of local businesses, as well as in incoming Foreign Direct Investment (FDI). However, more progress is needed to improve the business environment and achieve the country’s development goals. The decline in South African Customs Union (SACU) revenues pose a challenge to the country's fiscal outlook: revenues fell from 25% of GDP in 2014/15 to 13.6% of GDP in 2016/17. The government responded to the SACU shortfall by allowing the fiscal deficit to increase. As a result, Lesotho’s deficit reached 7% of GDP in FY2016/17. SACU revenues recovered in 2017/18 but are projected to decline by 2½ percentage points of GDP a year for the next two years. With public spending at 50% of GDP in 2016/17, and a wage bill of 18% of GDP, government’s ability to drive growth further is limited. As part of the budget bill for 2018/19, the government outlined some measures that it is implementing to reduce the wage bill and maintain macroeconomic stability and fiscal sustainability. These measures include; continuing its efforts to remove ghost workers, freezing new positions and limiting hiring to critical positions only, linking notch increases to performance, and introducing voluntary retirement.

Lesotho’s greatest health challenge remains its high HIV/AIDS prevalence and TB co-epidemic. The HIV prevalence rate in Lesotho is 25% in the adult population (15-49 years), the second-highest in the world. The incidence of TB stands at 724 cases per 100,000, according to the 2017 Global TB report, the second-highest globally. While high health costs contribute to the narrowing of the fiscal space, high HIV/AIDS and TB rates contribute to persistently high inequality and poverty.

Last Updated: Apr 19, 2018

Development Strategy: Lesotho’s vision

The Lesotho government’s development goals are reflected in its “Vision 2020,” and in the National Strategic Development Plan (NSDP) approved in March 2012.

The Lesotho Smallholder Agriculture Development Project supports smallholder farmers in targeted areas of Lesotho, with the goal of increasing market output among project beneficiaries. To date, the $24.46 million project has benefited 74 224 farmers in four of the 10 districts of Lesotho.

Private Sector

The Second Private Sector Competitiveness and Economic Diversification Project aims to contribute to the development of select, non-textile sectors in Lesotho, which could result in increased private sector investment, the growth of firms, and more job creation. The project has endeavored to catalyze growth in the horticulture sector in Lesotho, particularly in the deciduous fruit market. Three pilot projects, from 2007 to 2013, evaluated the feasibility of growing fruit and identified promising fruit varieties and afro-climate locations, after which the project was scaled up to several farms, and began the commercial sale of apples, plums, peaches, and apricots in Lesotho and neighboring South Africa. To date, there has been interest from commercial investors and international distributors to expand the acreage under cultivation.

Last Updated: Apr 19, 2018

Partners in Lesotho include members of the diplomatic corps, consular missions, and international organizations. Presently, there are four Embassies/High Commissions and nine international organizations, of which seven are from the UN family, and the other two are the Delegation of the European Union and the World Bank. Development Cooperation is coordinated by the Ministry of Development Planning.